Saturday, 1 June 2013

14 days left to make a difference...

So the pubco/tenant regulation consultation instigated by the government has just two weeks left to run, with the deadline for submissions on June 14th.

For many tied tenants and other 'stakeholders' in the British pub industry this has the potential to create a sea-change in the relationship between landlord and tenant as parliament has adopted the over-arching principle of "not tied tenant should be worse off than a free of tie tenant" and by the looks of it are determined to enforce some sanity and fairness into a dysfunctional market.

To illustrate how unfair the current business model of many pubcos (not brewers, but property companies) and some companies who are brewers and property companies one only has to look at the thousands of column inches devoted to the subject in both trade and mainstream newspapers and magazines.

A business model that systematically undervalues the effort and entrepreneurial skill of its tenants in favour of good old fashioned capital has no place in the developed economy of 21st century Britain. For that is what the pubco business model does, in many cases, by a factor of four with many thousands of tied tenants earning less than £15,000 a year from their respective endeavours and their landlords taking £60,000 or more from the very same pubs.

Of course there must be a return on capital invested, however, the imbalance of risk and reward built into the pubcos' "low-cost entry" model (i.e. tied rents and tied purchasing) has for too long been wholly out of proportion, in favour of the pubco.

The consultation documentation ends with various appendices and a sample rent assessment form, in effect, a shadow profit & loss account that aims to make the entire process of setting rents transparent and, above all, fair. It allows both sides to establish not only the likely sales and costs for a 'reasonably efficient operator' but also the all too often mythical SCORFAs or countervailing benefits pubcos insist they add to the equation.

To that end I have produced a simple spreadsheet whereby a tied tenant enters the details pertaining to their business (sales, costs of sales, overheads etc) and allows the pubco to enter the details (and value) of their respective SCORFAs. At the end of the process the over-arching principle (sic) is calculated and a fair rent is determined.

I put the figures in for the last tied pub I ran, a community boozer with 80/20 wet to dry sales split, in a suburb of a major East Midlands city and guess what? Yep, you guessed, the rent as determined by the will of parliament would have been not the £55,000 a year we paid our landlord but £27,000. For us this would have meant all the difference and may well have secured our long-term future in the pub, as it was we left after some three years considerably out of pocket, that despite having increased trade and reduced operating costs.

If you are a tied tenant and want to know what the fair rent for your pub should be head on over to the How To Run A Pub website and download the spreadsheet... if you've got all your financial information to hand it will take you less than 30 minutes to complete the calculator and I think it will be 30 of the most productive minutes you will spend in business this year.

Whether you're in a tied pub or are considering a tied pub as your preferred entry into the British pub trade don't you think you should know what the fair rent for your pub should be? The boys and girls in Bury St Edmonds, Solihull and Burton are going to be in for a big surprise as the touted £102 million of economic value the government thinks will be transferred (from pubco to tenant) under their proposed regulations is going to be a conservative estimate if my example is anything to go by.

Once you've done the calculation I'll wager you will want to complete the 17 question on-line consultation form and make sure your landlord is forced to alter their ways... after all as the campaign says, it's about time we had a Fair Deal For Your Local.

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